Royal Bank of Scotland to investors: 'Sell everything'

U.S. equity futures are getting clubbed pre-market. It is going to be a blood-in-the-streets opening today.

 

All told, could be a lot worse, given where things were pre-market. I think the Nasdaq 100 was down about 3 percent at the open. But things are holding up relatively well so far, heading into the European close.

Only thing in the back of my head is that we are heading into a three-day weekend and with credit concerns in China and the uncertainty of what might come out of there in the interrum, people might want to go into the weekend flat. Which could make for a late day sell off. The flip side is, on a short-term basis this is way oversold territory.

Aside from what happens today. ... ultimately, this stock market is going to go down hard. It's still a giant bubble with no fundamentals behind it.

 

I am posting this preemptively, to head off dumb random posts sometime in the future. Probably doesn't matter, because the people I am talking about don't actually seem to care what I actually post. ...

But when I say ultimately, this stock market is going down. ... It will happen soon. ... UNLESS the Federal Reserve steps back in with some form of QE4 asset buying (to bloat its balance sheet some more and hasten its own insolvency) or negative interest rates or some other rate suppression measure that I can't even conceive of until they make it up. ... to try to reinflate the bubble and put off dealing with the misery they created.

Even if that happens (and it is actually a pretty good bet, because that is what they do. They are children. Although one of these times, their phony bubble machine isn't going to work and they will be firing a gun with blanks into a their own self-created credit / dollar crisis), this market (along with a lot of other asset bubbles they created) is still going to ultimately go down. The phony artificial rates (near zero percent for a decade) and the asset buying just puts off having to deal with the grim future they pushed forward several decades, but in the process it makes the later price to pay worse. These are like heroin fixes.

Borrowing another analogy from someone else, they basically have covered a cancer (that they created in the first place beginning with Alan Greenspan and his keeping rates too low -- what blew the dot-com and housing bubbles) with a bandaid. They are now trying to take the bandaid off -- very gingerly, they barely moved it -- and underneath it the cancer has gotten much worse and is now a festering wound.

 

That is funny. I suck at those posts. I have 10 thoughts and don't want to spend a lot of time sorting them out and crafting the post. So I go crazy on the parentheses. Rereading, I agree it's not the best compromise.

 

What is going on in China right now is directly relatable to the the Federal Reserve. The yuan got killed by the dollar strength that was brought on by the Federal Reserve's dozen or so mouthpieces spending a year flapping their gums about how they were going to raise the overnight rate. ... without actually doing it until they backed themselves into a corner with their rhetoric. Mind you, we were talking about a miniscule 25 basis points, but the world they created can't even handle that.

That drove up the dollar relative to China and all of the emerging markets, which have gotten hammered. China isn't entirely blameless. They pegged the yuan to the dollar VERY happily when the Fed was doing round after round of quantitative easing and keeping rates at zero for a decade. That gave rise to bubbles all over China, too. Now they aren't so keen on what the Fed has wrought so they are frantically starting to devalue to hold off massive defaults and deal with their capital flight.

I am much more sanguine on China -- talking about the long term -- than I am on the U.S., even though China has the same problems everyone else has and is going to have to feel some pain. In fact, the misallocation of capital in China over the last decade goes beyond even what has happened in the U.S. They have been building airports and ghost cities and train stations in the middle of nowhere. I saw a story a week or two ago about them demolishing a building they had just built 2 years ago, because it wasn't being occupied. Talk about Keynesian craziness. They essentially put themselves in debt to pay people to build something. Then they paid more people with their debt to destroy it. That is what passes for economic activity in the upside down world that has been created.

What China has that the U.S. doesn't have, though, is that China still actually produces stuff that a lot of the rest of the world demands. What has gotten lost in all of the phoniness that central banks (the Fed, BOJ, ECB, PBOC) is that real economic activity isn't predicated on central banks manipulating currencies to produce more and more debt. That is phoniness that creates booms, followed by huge busts. Real economies produce stuff that others demands, at prices (without endless hindering regulations) that make those things attractive. And China at this point does that way better than the United States. Unless we rediscover that, we are becoming more and more like every other world power (think the British Empire) that gets fat and loses its competitive edge